Winchester Energy implements cost saving strategies for Mustang oil field

Winchester Energy ASX WEL Permian Basin Texas low cost oil production
Winchester's oil sales were strategically deferred as of May 15, through on-site storage, until June 2020.

The current COVID-19 crisis and a recent collapse in oil prices has seen Australian onshore exploration and production company Winchester Energy (ASX: WEL) make moves to increase efficiencies and preserve revenue at its 71 square kilometre landholding in the Nolan County area of Texas.

The strategy aims to bolster Winchester’s viability in a low price environment and includes a 25% targeted reduction in operating costs and 28.5% in overheads at its acreage on the productive eastern shelf of the Permian Basin.

To preserve operating capital, Winchester has reduced its lifting costs at the White Hat 2003, 2005 and 2006 producing wells in the Mustang field area to US$2.46 per barrel – 50% below the average findings of a 2020 study into Permian Basin lifting costs.

In May, the company decided to temporarily store all production from the wells at onsite facilities, resuming oil sales on 1 June in light of a rebound in prices and reduction of differentials.

The move is expected to realise an estimated increase of US$15/barrel revenue for the last two weeks of May, which averaged 222 barrels of oil per day net to Winchester’s 75% working interest.

Oil price recovery

Managing Director Neville Henry said the low-cost re-completion of a number existing wells was being planned as oil prices start to recover from recent lows.

“We took early charge [of the crisis] by focusing on reducing our expenditures in February and March which has assisted to preserve our working capital,” he said.

“The postponement of new drilling and completion operations at this time reduces production of our resource base which is undervalued in the short-term [and] preserves our best options for future, low-risk investment as oil prices recover.”

Mr Henry said a pause in drilling activities during the first part of 2020 had allowed the company’s technical team to review and assess new project and play opportunities made available by the low price environment.

“With our strong prospect base and multiple wells with behind-pipe completion options, we are well-positioned to develop and execute our strong growth plans as oil prices continue to recover,” he said.

“We will focus on low-cost re-completions to augment existing production in the Mustang field area, and then on new drilling for further exploration and potential project expansion subject to improved and sustained commodity prices.”

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